Jobs Report: Economy Sputters and Stalls in March

The American economy added 88,000 jobs in March, according to the Bureau of Labor Statistics, which was a major miss from predictions. Forecasters were expecting between 150,000-200,000 jobs added. The unemployment rate dropped despite the lackluster number added due to a sharp drop in the labor force participation rate - from 7.7 to 7.6%. Nearly half a million people stopped looking for work in March.

In short, then, the economy stalled after a surprisingly strong February. Employers weren't hiring much and a lot of people gave up looking for jobs. Even the federal government lost jobs - though that was mostly driven by the U.S. Postal Service laying off workers. The U-6 "broader" measurement of unemployment also fell, to 13.8%.

On a mildly positive note, this BLS report also revised both January and February's jobs reports up by 62,000 jobs, though that's far from enough to make up for today's disappointment. March will also be subject to future revisions, and these revisions might possibly be fairly high.

There are quite a few explanations for why the economy sputtered in March. The payroll tax hike from January's fiscal cliff deal might have started taking effect. It may be possible that anticipating effects from sequestration would have frozen some employers' payrolls. But what the media likely won't focus on is that Obamacare implementation has weighed heavy on the minds of employers. Paul Howard, senior fellow at the Manhattan Institute, testified before Congress that:

The consulting firm Mercer predicts that "more than a third of the nation‘s employers – 38% - have at least some employees for whom coverage would be considered 'unaffordable' under [PPACA]." The penalty is equal to $3,000 per full-time employee receiving subsidized coverage, or $2,000 per FTE excluding the first 30, whichever is less. (Although Mercer found that more small companies would be affected by the penalty, 31% of employers with 500 or more employees would be at risk, along with 20% of employers with 20,000 or more employees.)

The play or pay mandate is apt to have a variety of effects on coverage and employment decisions. For employers with 50 or fewer employees who do not offer coverage, it will be a disincentive to grow beyond the "cap" and incur the penalty – reducing employment. One labor economist notes that the $2,000 penalty will amount to 15% of average wages in the restaurant industry and nearly 10 % of wages in the retail sector – providing an incentive for firms to hire fewer lower-wage workers or become more automated. (In general, firms will also prefer to hire full - time workers as the cost of benefits per - hour of labor is lower.)

Bottom line: this was a mediocre jobs report. What seemed like an economy poised to finally rebound in February stalled in March. Federal policy likely played a role in this - be it the tax hikes from January's fiscal cliff deal, the implementation of Obamacare provisions, or the anticipation of sequestration. People have given up looking for work en masse, and there aren't really any signs of a sharp turnaround coming.